Author Question: What is the capital accumulation equation used by Solow? What will be an ideal ... (Read 58 times)

burchfield96 · **on:** Jun 30, 2018

What is the capital accumulation equation used by Solow?

What will be an ideal response?

Question 2

The average propensity to consume (APC) is

A) the rate at which real consumption spending changes over time.
B) the percentage of real disposable income saved.
C) the percentage of additional real disposable income that will go toward additional consumption spending.
D) the percentage of real disposable income consumed.

juliaf · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

According to Solow, the capital in the current year is equal to the capital of last year less the depreciated capital plus the level of investment. This implies:
Kcurrent year = Klast year - Kdepreciated + I
or, Kcurrent year = Klast year - (depreciation rate Klast year) + I
or, Kcurrent year = (1 - depreciation rate) Klast year + I

Answer to Question 2

D